What we heard: It has been a busy week for Activision. The publisher announced its year-end financial results Wednesday, showing an annual $113 million profit--but a quarterly loss of $286 million. The latter shortcoming was blamed on a write-down of its ryhthm-game assets, which were devalued by the ongoing music-game glut. The company's lineup of Guitar Hero games suffered significantly, with sell-through down 35 percent from 2008.

Jimi plays "Little Wing" in memory of RedOctane.

That prompted Activision to take action, dramatically scaling back its slate of Guitar Hero SKUs (stock-keeping units; a game with two different bundles on three platforms each would be six SKUs). In 2009, Activision bombarded retailers with 25 different Guitar Hero SKUs, from the PlayStation 2 edition of Guitar Hero: Van Halen to the Wii version of Guitar Hero: Metallica. For 2010, Activision is planning just two major music games--a Guitar Hero game and DJ Hero 2--with fewer than 10 SKUs.

If Activision is making fewer games, that means it needs fewer development teams, something confirmed yesterday by the publisher's layoffs across the company. Radical Entertainment (Prototype) and Neversoft (primary Guitar Hero developer since 2007) endured some layoffs, while Transformers: Revenge of the Fallen studio Luxoflux was shuttered entirely.

That RedOctane would be included in the cuts is not entirely surprising. That it would be shuttered entirely is. Kotaku reports that RedOctane "has been completely shut down," with some key employees retained to "report straight to Activision" and 30 to 40 others laid off. The blog also says Underground Development, which worked on Guitar Hero: Van Halen, has been shuttered.

A source within the company confirmed for GameSpot that Activision is planning to close RedOctane down within two months and that the publisher is discarding the brand name entirely. If even the outfit that published the original Guitar Hero and was acquired by Activision for $100 million is expendable, the publisher would have little reason to flinch in closing a shop that worked on exactly the sort of spin-off project that won't be made this year.

The official story: "As part of our overall strategy to release fewer Guitar Hero SKUs in 2010, we are closing the Underground studio and relocating Guitar Hero headquarters to Santa Monica under the leadership of [Guitar Hero business unit COO] David Haddad." - An Activision representative.